Ad Valorem Tax
Ad valorem tax is an annual fee imposed on a vehicle based on its value. Taxpayers who own a vehicle pay this amount yearly to keep the registration current. Typically, the total due includes a charge for mailing and a charge for the yearly tag. While the mail and tag fees are not tax-deductible, the total ad valorem tax can be deducted if the taxpayer qualifies to itemize deductions on Schedule A. When many people speak about "deducting their license plates," they are referring to deducting the ad valorem tax on their vehicles.
Business Use of Vehicle
Small-business owners who purchase a car that is used exclusively or largely for business may deduct both the ad valorem tax and the cost of the license plate. Car and truck expenses must be calculated using either the standard mileage rate or the actual amount of yearly expenses. Taxpayers who choose to use the actual expenses can deduct the cost of licenses, registration fees and other vehicle costs as a business expense. Individuals who use a vehicle for both personal and business purposes must separate the personal vehicle mileage and costs.
Charitable Organization License Plates
License plates that support a charitable organization are typically more expensive than traditional license plates. The extra fees are a donation to the specific charity and are usually tax-deductible. In order for a charitable contribution to be deducted, it must be given to a qualified, recognized non-profit organization. The exact amount of the contribution is the only cost that qualifies as a tax write-off. The cost of the license plate itself is not deductible. Charitable contributions are only available to taxpayers who itemize their deductions.
Reporting these license plate and ad valorem tax deductions requires that individuals use the correct forms. Both ad valorem tax and charitable contributions are reported on Schedule A and are deducted if the amount of itemized deductions exceeds the standard deduction for the taxpayer's filing status. Small business owners and independent contractors generally report business vehicle expenses on Schedule C: Profit or Loss From Business.